The Insolvency protections, which were in place since March 2020 (known as the ‘insolvency moratorium’) has now come to an end. Accordingly, those protections afforded by the Coronavirus Economic Response Package Omnibus 2020 (Cth), such as the increase in debt owing before a creditor could issue a statutory demand (from $2,000 to $20,000), the extension of time within which a debtor had to respond to a Statutory Demand (from 21 days to 6 months), and certain protections for directors in relation to insolvent trading, has now come to an end.
Consequently, Statutory Demands can now be issued against companies who owe debts from $2,000 and the company mustcomply with the demand within 21 days, to avoid being wound up.
However, there are some new insolvency protections that have come into effect on 1 January 2021, for small businesses.
The Corporations Amendment (Corporate Insolvency Reforms) Regulations 2020 (Reforms) provides for a more efficient external administration process, allowing small businesses to remain viable, or where this is not possible, to encourage better outcomes for creditors and employees.
The Reforms include key features such as:
- A formal debt restructuring process for eligible small businesses, which is intended to reduce complexity and cost of administration and enable directors to remain in control of the business and its property to avoid being wound up. This process will involve a Small Business Restructuring Practitioner (SBRP), who will consult with and assist the directors to develop an appropriate debt restructuring plan.
- Temporary relief for companies entering the new formal debt restructuring process. Therefore, eligible small businesses who appoint a SBRP may become eligible for the same protections that were in place between March 2020 and December 2020 (as above).
- A new simplified liquidation process for companies with liabilities of less than $1mil that cannot be saved (i.e. restructuring is not a viable option).
Prepare for 2021
Now is the time to take stock and assess those debts owing to you, or the debts you might owe to others. It is vitally important to ensure you understand your rights if a company you deal with appoints a SBRP or utilises the simplified liquidation process. Similarly, you should consider whether the new Insolvency Reforms may be of benefit to your business and find out whether you are eligible to appoint a SBRP to administer the restructuring of your company and/or receive temporary insolvency relief.
If you need further information or assistance with these changes, please contact Rankin Business Lawyers.